Thursday, 24 March 2011 09:12

DRPs and Fear—Hope for a Reduction in the Number of Shops

Written by Insurance Insider

Let’s start with a simple question: What does “DRP” really stand for?

Conventional wisdom says that “direct repair program” is the correct answer. While that is the literal meaning of the acronym, the non-official translation could easily be, “Don’t remove, please.” I can assure you from many years of experience in the insurance industry that this is more true than most people care to acknowledge.

Many body shops have lost control of their business. As a result, many of those shops spend a lot of time hoping, begging and pleading that they aren’t removed from their DRP lifelines.

When the insurance company says, “Jump,” the shop shouts, “How high, how many times and should I give you a discount for allowing me to jump?”

This isn’t conducive to a marketplace that allows all the stakeholders--repairer, insurer and vehicle owner--to benefit.

Before anyone shouts “Amen,” there are different ways of losing control. Yes, it is true that the insurance industry has assumed some control over a portion of the body shop industry. The control was attained because shops allowing it to happen, and because of the ever-evolving marketplace. That marketplace has seen a drop in claims, double-digit total loss percentages, customers cashing out, $1,000 deductibles on the rise, and damaged vehicles being shipped overseas faster than they can be rolled off an assembly line in a Detroit manufacturing plant.

The end result is a drop in the number of repairable vehicles, leaving many of the 35,000+ repairers in the United States in search of work. In other words, low demand and high supply equals shops desperate for business.

Even though I am referring here to the U.S., international shops have experienced very similar problems. Australia and the United Kingdom come to mind. In fact, in the U.K., the low supply caused a large percentage of shops to go out of business.

Although neither industry would openly admit it, many insurers and repairers have been anxiously awaiting a mass reduction in the number of shops for varied reasons. High-quality, ethical body shops want the bottom-feeders to go out of business. The bottom-feeders invest very little in their businesses – yet they are (unfairly) treated the same as the Tier 1 shop. In most cases, the Tier 1 shop and bottom-feeder have the exact same labor rate in a given direct repair program. How is that fair or good for business?

Insurers need to find a way to differentiate the high quality shop from the bad. That is one reason why insurers like the idea of a shrinking number of body shops. There are so many shops that they have a hard time identifying the high quality shops. In addition, a reduced number of shops would better assist them in controlling the customer’s experience and repair.

There are many shops around the country that have resisted the DRP security blanket and have remained autonomous. This doesn’t make the autonomous shop any better or worse than the DRP shop. It’s simply a different way of doing business. It’s okay to be different. In fact, in this world we celebrate and promote diversity. And, at least in the United States, if you don’t promote and encourage diversity, you can quickly find yourself on the receiving end of a lawsuit for being discriminatory.

DRPs play a vital role in the industry whether you care to believe it or not. They promote competition, can reduce cost (which ultimately benefits the consumer) and can positively impact the customer’s experience. Don’t be hypocritical by questioning my opinion if you are one of the many enrolled in a DRP-type health care program. If you are currently enrolled in an HMO or PPO program, please don’t send me any hate email on how stupid I am. In the immortal words of Forest Gump, “Stupid is as stupid does.”

While I was joking about “Don’t remove, please,” the fact is many shops do operate in total fear. Fear that at any given moment they could lose a significant amount of their business and revenue. While this may not be fair, shops that heavily rely upon DRPs benefit the most from these relationships. In the end, it is a decision made on an individual level as to what is best for that business. Just be careful that the oxygen that the direct repair program is providing your shop isn’t your only source of air.

Otherwise, you risk having the plug pulled when you expect it the least.